A corporation that is short on cash will take a trade discount of 2/10 net 30 only if the corporation's cost of funds is less than 2%.

Question

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The trade discount of 2/10 net 30 means the corporation can save 2% by paying in 10 days instead of 30. The annualized cost of not taking the discount is much higher than 2%, making it beneficial for the corporation to take the discount if its cost of funds is less than the annualized cost of the discount, which is significantly higher than 2%.

A Corporation That Is Short on Cash Will Take a Trade